Powell reiterated that there was little room for interest rate reduction, and the probability of holding still rose to 100percent in December

category:Finance
 Powell reiterated that there was little room for interest rate reduction, and the probability of holding still rose to 100percent in December


At the hearing, Powell again expressed his confidence in the economy. He mentioned several times that the U.S. economy is in good condition, and believed that it will continue to expand sustainably. He did not see any danger signals in other cycles. Low inflation indicates that the risk of overheating is not high.

At present, the United States is experiencing the longest expansion cycle in history, and the unemployment rate is at a low level in nearly 50 years. Powell said that consumers strongly support the economy, low unemployment, consumer confidence and moderate wage growth are the main factors driving the U.S. forward, and low-income people benefit more from it. However, the labor market is not far away from full employment, but the labor participation rate is an urgent problem to be solved. The growth of population age leads to the decline of labor growth.

Trade is also a concern of the Federal Reserve. Powell said that the main reason why the US manufacturing industry is hovering on the edge of recession this year is the deterioration of the global trade situation. The Federal Reserve is closely monitoring the risks. At present, it does not see the weak spillover effect of manufacturing industry affecting the overall economy. In general, the impact of tariffs on the economy is relatively limited, and there is no reason to believe that the possibility of a recession is rising.

For the future policy expectation, Powell said that there is not much room for the fed to cut interest rates under the low interest rate environment. At present, he is carrying out a lot of work to understand the liquidity problem of the repo market and is committed to achieving the Feds dual goals. This echoed his announcement the day before, suggesting a suspension of interest rate cuts, that as long as new information about the economy is broadly in line with the Feds expectations on the labor market and inflation, the current monetary policy stance may still be appropriate.

Debt needs attention, dont worry too much

In a hearing the day before, Powell said that the current long-term federal budget is on an unsustainable path, which may weaken the effectiveness of policy makers in the economic downturn. This time, he reiterated his concerns about the accelerated expansion of debt, arguing that a broader commitment is needed to maintain fiscal sustainability.

According to the data of the US Treasury Department, the total amount of US national debt increased by US $1.2 trillion in 2019, reaching a record US $22.72 trillion, equivalent to 106.5% of GDP in this fiscal year. The tax reform reduced the growth rate of tax revenue in the last fiscal year to 3.4%, even lower than the growth rate of nominal GDP of P4%, but the expenditure increased by 7% to 4.16 trillion US dollars. During the same period, the nominal GDP of the United States only increased by 830 billion US dollars, and the growth of debt has greatly exceeded the economic expansion. In fact, the United States is using borrowed money to buy this economic expansion.

Ray Dalio, founder of Bridgewater, the worlds largest hedge, warned at the end of last year that if the fiscal deficit is not properly resolved, the United States will face a debt crisis in the future. Rapid expansion of public spending such as pension and medical care will cause huge pressure on the governments budget. In order to raise enough funds, the government needs to issue a large number of bonds, but the market has not With the ability to fully absorb these bonds, the Fed will have to issue money to fill the deficit hole He said.

Powell said that the current US debt growth rate is faster than the economy, which is unsustainable. We need economic growth to be faster than debt expansion. We believe that the United States will eventually find a sustainable path to debt expansion, but it needs to be completed in the next 10-20 years. But its too early to worry too much about debt. The chairman of the Federal Reserve said the dollars position as a global reserve currency helped prevent the countrys growing debt burden from causing huge problems. The combined strength of the US means that the time of liquidation is still far away. Powell said. With the end of two consecutive days of congressional hearings, Powells public trip this month was announced. Fed watch, a Chicago Mercantile firms CME interest rate watcher, said the probability of the Fed staying put rose to 100% in December. US bond prices rose across the board, with yields on 10-year and 30-year US bonds down about 5 basis points. Source: First Financial Editor: Wang Xiaowu NF

Powell said that the current US debt growth rate is faster than the economy, which is unsustainable. We need economic growth to be faster than debt expansion. We believe that the United States will eventually find a sustainable path to debt expansion, but it needs to be completed in the next 10-20 years.

But its too early to worry too much about debt. The chairman of the Federal Reserve said the dollars position as a global reserve currency helped prevent the countrys growing debt burden from causing huge problems. The combined strength of the US means that the time of liquidation is still far away. Powell said.

With the end of two consecutive days of congressional hearings, Powells public trip this month was announced. Fed watch, a Chicago Mercantile firms CME interest rate watcher, said the probability of the Fed staying put rose to 100% in December. US bond prices rose across the board, with yields on 10-year and 30-year US bonds down about 5 basis points.